Foreclosures
Foreclosure Overview
What is Foreclosure?
With mortgage interest rates at historic lows and a record number of homes falling into foreclosure, many real estate investors and homebuyers are pouring their money into the foreclosure market. But before you set sail on your foreclosure adventure, you need to know how to navigate the foreclosure market.
Good foreclosure buys are available, but buyers need to do their homework, be patient, learn the foreclosure process and most importantly - be persistent. If you are a novice, it is highly recommended that you educate yourself about the foreclosure process and arm yourself with the necessary research and preparation. Learning about available properties has become much easier with Web-based services such as RealtyTrac, which gives consumers access to foreclosure and pre-foreclosure information that was previously available only to professional real estate brokers and investors. Today, homebuyers can use services like RealtyTrac to identify and research potential home purchases, as well as to find the tools and professional resources they need to help them close the deal.
Foreclosure is a process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership (repossession) of the property securing the loan. The foreclosure process begins when a borrower/owner defaults on loan payments and the lender files a public default notice or a lis pendens (Latin for "lawsuit pending") - depending on the state. The default notice is a public record, and for buyers it's the first step in locating a property in foreclosure.
Foreclosure buyers, however, need to be careful. There can be other liens on the property, which can drive up the purchase price. Liens are typically placed on a home for outstanding property taxes. But there can also be mechanic liens for unpaid repairs or remodeling done by a contractor. Buyers should also research the local state foreclosure laws. California and Texas, for example, follow non-judicial foreclosure process, which means that lenders are not required to go to court or file a lawsuit to repossess a home. Other states - like New York and Florida - require the lender to sue the borrower and get a court order to sell the property.
Ultimately, however, the foreclosure process can end one of four ways:
1. The borrower/owner pays off the default amount to reinstate the loan during a grace period known as pre-foreclosure.
2. The borrower/owner sells the property to a third party during pre-foreclosure, allowing the borrower/owner to pay off the loan and avoid having a foreclosure on his or her credit history.
3. A third party buys the property at a public auction at the end of the pre-foreclosure period.
4. The lender takes ownership of the property, usually with the intent to re-sell. The lender can take ownership through an agreement with the borrower/owner during pre-foreclosure or by buying back the property at the public auction.
Foreclosure Buying Opportunities For Real Estate Investor and Homebuyers
There are several opportunities for buyers to purchase foreclosure properties. For investors and homebuyers, the foreclosure process offers three bargain-buying opportunities, represented by six different property status's.
1. Buying during pre-foreclosure (NOD, LIS)
2. Buying at public auction (NTS, NFS)
3. Buying bank-owned properties (REO, GOV)